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Westlake Chemical Partners LP Coming to Market

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Westlake Chemical Corporation is spinning off their ethylene production business into a new Master Limited Partnership.  Westlake Chemical Corporation is a vertically integrated manufacturer of chemicals, polymers and fabricated building products.  Interestingly the new MLP will have 3 production facilities and a ethylene pipeline--a welcome fact since some of the more recent MLP's have had just 1 or 2 production facilities (such as Northern Tier Energy which has just 1 oil refinery) and this always put revenue at risk when 1 outage at a production facility can end your revenue stream.

Ethylene is produced from the ethane portion of natural gas liquids and Westlake believes that the feedstock for their production is a lower cost feedstock than global norms in the production of ethylene which use propane and butane for feedstocks.

Like almost every MLP that has been launched there is somewhat of a incestuous relationship that will be present after the IPO--in particular Westlake Chemical Partners LP will sell their ethelyne production to Westlake Chemical Corp. on a cost plus basis under a 12 year sales agreement for 95% of their production.  In this case Westlake Chemical Partners LP will receive cost plus 10 cents/lb. The claim is that this will produce more stable and predictable cash flow.

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